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Introduction toNature Markets Assessing land​opportunities Working with​other farmers​ Baselining,​planning and​measuring Working​with buyers Farm business​planning Liability & risk​management Using repayable​finance​ Signing legal​contracts Public sector​funding & policy Tenancy &​ownership​
  4. Groundwork
  10. Market Engagement
Introduction toNature Markets Assessing land​opportunities Working with​other farmers​ Baselining,​planning and​measuring Working​with buyers Farm business​planning Liability & risk​management Using repayable​finance​ Signing legal​contracts Public sector​funding & policy Tenancy &​ownership​
  4. Groundwork
  10. Market Engagement

Summary of Environmental Farmers Group

Environmental Farmers Group (EFG) is a farmer-led organisation focused on delivering environmental improvements financed through nature markets. The farmers work together to identify where natural capital improvements would best be made, and where opportunities exist for nature markets. The EFG shares knowledge and processes across its members to strengthen their position as owners and managers of natural capital. The EFG was launched in May 2022 in the Hampshire Avon river catchment and completed its first trade in March 2023. As of October 2023, it comprises of 257 farmers and 140,000 hectares, with a mix of owner occupiers and tenant farmers, and has since expanded its model elsewhere in England.

 

Farm Profile:

  • Location: Hampshire, Wiltshire, Dorset, Northern Lincs, Northants
  • Size of Farms: 20 hectares – 3000 hectares
  • Size of Land: 140,000 hectares
  • Tenancy & Ownership: Mix of tenants and owner occupiers
  • Nature Market Primary Focus: Biodiversity Net Gain, Nutrient Neutrality, Water Quality
  • Interventions: various
  • Project Partners: Game and Wildlife Conservation Trust (GWCT), Natural Capital Advisory

 

What do I need to know about nature markets to begin with?

 

This section of the Toolkit provides a brief overview of nature markets in England and how they relate to farmers. It is designed to answer some of the early questions that farmers may have around nature markets. All Toolkit content, including this Introductory section, will be updated regularly.

 

What market opportunities are available to me based on my land and goals?

 

This milestone will guide you through an initial assessment of your land as you determine what your broad vision is in relation to nature and help you to identify what opportunities might be available to you to attract private sector finance.

The actions taken at this stage can be taken before you’ve made the firm decision to engage in nature markets. The considerations presented in this milestone will help you determine whether nature market participation makes sense for your goals, the condition of your natural capital and your farming business.

You can also apply many of these considerations to develop a broader vision around your natural capital and other potential funding sources – such as government grant schemes or philanthropic funding.

 

Will I need to partner with other farmers, and if so, how?

 

Once you have a vision for your farm, the environmental enhancements or changes you want to make and a sense of the related income opportunities, you may want to consider joining up with other farmers in your area to implement your outcomes at scale to attract buyers.

Aggregation models, often started among farmer clusters or as farmer cooperatives, bring together multiple farmers or landowners to collectively participate in nature markets. These models aim to harness the combined efforts and resources of farmers to maximise environmental benefits and economic opportunities. This section will introduce the factors that may influence your decision to join up with other farmers and some of the key considerations to keep in mind when setting up and participating in such a group.

 

How do I measure the environmental outcomes that I can produce in a robust way?

 

At this stage you will have developed an overarching vision for your land and a rough plan for what you want to improve. You will now want to make robust baseline measurements of the condition of your land and develop a detailed plan for interventions and intended outcomes. Plans will also include how you intend to maintain your interventions, measure the impact you are having and verify your outcomes in order to sell them.

 

How should I identify and approach buyers for my outcomes?

 

During your initial project scoping, you may have identified potential buyers of the environmental outcomes you are planning to deliver. Now that you have a project plan and a robust baseline, you will be ready to approach and engage buyers more formally.

Buyers will vary in their expectations and requirements. This milestone will help you prepare for initial conversations with potential buyers to ensure you are empowered to ask the right questions and present a project that will attract a fair price. Your buyers may be within your own supply chain such as retailers and businesses, or organisations who benefit directly from your ecosystem services such as water companies or firms who seek to offset their own environmental impacts.

 

How would this project fit in with my current farming business model?

 

Nature market projects are often just one part of a farmer’s wider business. Some people compare building nature market projects to developing ‘micro businesses’ for the farm. As such, much of the content you see here will be familiar to you.

However, these projects also have key features that separate them from the businesses that farmers usually engage in. For example, the longer timeframes associated and the current uncertainties relating to how nature market projects (and the deals that result) can be blended with government schemes.

Below is a list of questions that will help you think through how to incorporate these projects into your current farm business plan. This includes considerations on building a cashflow or partial budget, but also the less quantifiable factors, such as the potential drawbacks and opportunities to your wider farm that nature markets present.

 

What kind of risks should I be aware of and how can I manage them?

 

Like with any aspect of a farm business, risk management is critical – especially for nature market projects that can run over several years. As the landholder, you may be leading the development of the project, be part of a wider group of farmers, or be working with a third-party project developer that is taking the majority of the risk.

In any case, it’s advisable to have a clear understanding of the likelihood of the risks involved, what will happen if the risk materialises, what you as the landholder might be liable for, and how the risk is being managed to prevent this liability.

This Milestone sets out the different types of risks that nature market projects (and the deals that result from them) often carry. The last section covers the types of legal entities that farmers might form, as these can help to manage certain risks and benefit the overall operations of the project.

 

Is it possible to use repayable finance upfront to meet any of the costs?

 

Repayable finance from investors – typically debt or equity – is not always necessary in nature markets if upfront costs can be met by the buyer or through grants.

It’s also important to note that, even when repayable finance is needed, farmers do not necessarily have to secure this themselves.

In the UK, there are very few examples of individual farmers taking out loans and no examples of farmers issuing shares to use specifically to finance a nature market project. Typically, the upfront capital required is organised by a third party – for example, a third-party project developer, a broker etc.

However, as nature markets develop further, and in the case of larger farms, there is potential for farmers to secure repayable finance and meet up-front costs, as with other parts of their business.

The below therefore sets out some questions that farmers (and, more likely, third party project developers) could ask themselves to secure repayable finance from lenders and investors, whether that’s taking on finance independently, or as part of a larger group or partnership.

 

What do I need to be aware of when signing contracts?

 

This Milestone is about the legal contracts you will use and sign to officially commit to the project and transition it to a fully fledged deal. As business owners, farmers are familiar with contracts and understand the need to carefully review the details before signing any such agreements.

Any nature market deal is likely to involve legal agreements that will be tailored to each set of circumstances. However, for ease this Milestone sets out what contract set-ups are used in this space, common contract types, and other key considerations to ask yourself at this stage.

Disclaimer: The information in this Milestone does not constitute any form of legal advice but instead serves as practical advice that has been written by speaking with lawyers, farmers and other practitioners. We recommend that appropriate legal advice should be taken from a qualified solicitor before taking or refraining from any action relating to your contracts and projects.

 

Can I participate on tenanted land?

 

The tenancy and ownership structure of land can have significant implications for farmers engaging in nature markets in the UK. The rights of tenants in relation to nature markets is still not entirely clear in the UK and may differ on a case by case basis. Below are some key considerations which can help both tenants and landlords in asking the right questions when considering engaging in nature markets as policy and legal frameworks develop. Further guidance prepared by the Tenant Farmers Association and the Country, Land and Business Association can be found here. 

 

How do public sector funding and policy align with nature markets?

 

In England, the role of public funding and support to farmers is undergoing change on a scale not seen in decades. The government hopes to strengthen the link between environmental and farming practices to meet its climate and nature restoration targets, while maintaining food security and the viability of farm businesses across the country.

This section offers a summary of how government is working with farmers to access nature markets, and provides guidance on:

 

  • How nature markets might work with public subsidy schemes,
  • What development funding is available for farmers to explore their opportunities,
  • What ‘market infrastructure’ the government is supporting – including Standards and Codes.

Groundwork

 

We have separated out these Milestones into ‘Groundwork’ and ‘Market Engagement’ to indicate which Milestones you will want to read as you consider and/or prepare for nature markets (Groundwork) and those you will move through if and when you decide to become a seller of environmental outcomes (Market Engagement).  

We recommend all farmers read through the Groundwork Milestones in addition to the Introduction to Nature Markets in order to understand better whether nature markets are for them, and how they can, at the very least, explore and baseline their farms so they are ready for any opportunities that may arise later.  

Market Engagement

 

We have separated out these Milestones into ‘Groundwork’ and ‘Market Engagement’ to indicate which Milestones you will want to read as you consider and/or prepare for nature markets (Groundwork) and those you will move through if and when you decide to become a seller of environmental outcomes (Market Engagement).  

We recommend all farmers read through the Groundwork Milestones in addition to the Introduction to Nature Markets in order to understand better whether nature markets are for them, and how they can, at the very least, explore and baseline their farms so they are ready for any opportunities that may arise later.  

 
Acknowledgements

With many thanks for their time and insight on this case study:

 

Robert Shepherd, Farmer and Board Member, Environmental Farmers Group

Ed Shuldham, Farmer and Scoping Group Member, Environmental Farmers Group

 

Digby Sowerby, Operations Officer, Natural Capital Advisory

Rachel Ridd, Business Officer, Natural Capital Advisory

 

Date published: 16/11/2023

Next Milestone

Key Takeaways

  • EFG was first formed through collaboration between cluster farm leads in Hampshire and the GWCT. It has since expanded to 257 expressions of interest and members with 140,000 hectares.
  • EFG helps to assess any incoming nature market offers that farmers are presented with, but also proactively builds nature market trades that can leverage its seller collective advantage.
  • The farmer members of EFG can choose to participate as much or as little as they like; for instance, joining knowledge sharing events, or pursuing nature market deals and trades.
  • EFG has an ‘equalization model’ that shares a percentage of profits from any trades with other farmers within their area, and a commission to fund the operation of the EFG.

 

 

Why do EFG farmers want to work together?

EFG was first formed through collaboration between cluster farm leads and GWCT. The founder  farmers saw the loss of Basic Payment Scheme (measured as £37m annually within the Hampshire Avon catchment alone) as a threat especially to environmental projects within their cluster.

They also recognised the opportunity that nature markets could bring to sustaining farmers’ income, but that to deliver nature-positive outcomes with these, they need a model that is scalable, commercially viable, and farmer-led.

Ed Shuldham, farmer and Scoping Group Member of the EFG, explains that, before EFG was formed the farmers of the catchments were wary of offers to participate in nature market trades – primarily carbon – and wanted a ‘trusted navigator’ that would help them to make informed decisions and retain control over their land.

EFG has since created a model that aims to help farmers deliver ecological benefits to their land for fair financial reward. It aims for farmers to work together and deliver:

  • Scale – the EFG has expanded to four catchments with 257 expressions of interest and members covering 140,000 hectares.
  • Selling power – By working together, this scale generated (along with market intelligence) gives farmers a stronger negotiating position with buyers.
  • Farmer autonomy – Farmers are not obligated to take part in nature market deals or trades, and can choose to participate as much as they are comfortable with.
  • Access to opportunity – Farms of all sizes are able to join EFG’s model, and the model can deliver different ecosystem services (carbon, nutrient neutrality, BNG) to different buyers.

 

The EFG itself is farmer led, with governance split between a Board, Executive Team, Steering Groups and the wider farmer membership. You can read more about its governance in Milestone 6.

 

What does EFG do for farmers?

EFG helps its farmer members assess new nature market opportunities. For example, if a farmer member is approached by a third party with an offer to participate in a deal, EFG helps to assess the details of this offer, draft up Heads of Terms and help to ensure that the farmer is getting fair terms for the responsibilities and liabilities they are accepting.

For natural capital support and market intelligence, EFG has also contracted Natural Capital Advisory (NCA), a subsidiary of GWCT, to help with this core function. It works with other service providers, such as ecologists and accountants, on various activities to support this.

Under the EFG membership model:

 

  1. Each member retains decision-making control and decides how they engage with the EFG. For example, they may join simply for the knowledge sharing on nature markets, or fully pursue a deal with a parcel of their land. In return for this, when farmers agree to a new deal, any income from this deal is shared through the EFG’s equalisation model (see below).

 

  1. The EFG also has a Trade Allocation policy. This means that farmers have first rights to any trade that they are approached with directly. Equally, if someone approaches the EFG with a proposed trade, the EFG will distribute to members where it believes the deal is most suited to farmers’ priorities and the ecology of the land.

 

  1. Farmers are permitted to exit the EFG on a fair terms basis. This means farmers can leave the EFG with ease, but EFG has a 12-24 month notice period in place to make sure farmers do not use EFG’s services and then exit to avoid paying commission on trades.

 

EFG is expanding its model and as such, Steering Groups are being created in each new equalisation cell. These Steering Groups are made up of farmers local to the equalisation cell and they provide the momentum and direction in local areas.

NCA has also set up two similar models in the north of England – the Peakland Environmental Farmers and the Swaledale and Wensleydale Environmental Farmers. If you would like to form your own EFG cell in your area, you can express your interest online.

 

How are costs and incomes shared?

To share income from any nature market trades, the EFG uses an ‘equalisation policy’ that means any net profits are split:

  • 88% to the farmer that engages in the trade
  • 9% to other farmers in the local cell of the trading farmer – in recognition for the seller power of the collective and for these farmers helping the EFG to meet its beneficial scale.
  • 3% to the EFG – commission to help cover administrative costs.

EFG incurs costs such as its administrative expenses, legal and professional support fees, knowledge sharing events, and pilot initiatives, such as trialling soil carbon measurements.

To help share costs, farmers pay a subscription of £1.25 / hectare / annum (as of November 2023). These subscription fees are used alongside the 3% commission charges from trades, and other funding that the EFG has received to date, such as grant funding and local business sponsorship (see Milestone 1 for more detail).

 

 

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